How A Decline In Philip Morris’ Share Price Has Made It An Attractive Buying Opportunity

The possibility of a trade war with China has resulted in a general weakness in the stock market, and has caused Philip Morris International‘s (NYSE:PM) stock to fall roughly 6% in the past month, dropping to $101.35 currently, while year-to-date, the stock is down 3%. The rejection of Philip Morris’ proposed claim, that its iQOS device presents less of a health risk than traditional cigarettes, by an advisory panel instituted by the FDA was another factor that prompted a fall from the high of $110 seen in January. Such a scenario has brought about a situation where Philip Morris’ stock looks undervalued.

We have arrived at a price estimate of $124 for Philip Morris, which is above the market. This is based on an estimated revenue of $3.19 billion in FY 2018, net income of $8.2 billion, and a P/E multiple of 23.5. You can click here to see our interactive dashboard, and arrive at your own price estimate by modifying the different inputs.

Our net income forecast is based on the expectation that the revenue will jump 11%, while the net income margin will fall to 25.7%, from 26.7% in FY 2017. Increased investment for heated tobacco unit production would result in higher capital expenditure, as well as increased depreciation and amortization. These factors can be expected to result in the fall of the net income margin.

Philip Morris’ revenues can be calculated by multiplying the average revenue per cigarette with the total number of cigarettes sold, and then subtracting the excise taxes paid for each of its four segments – European Union; Eastern Europe, Middle East, and Africa (EEMA); Asia; and Latin America and Canada. Looking ahead, while increasing health consciousness should result in a decline in cigarette volumes, PM’s strong presence in the premium cigarette market should enable it to raise its cigarette prices, without impacting the volumes greatly. The excise taxes paid can be expected to rise as a result of higher revenues, as well as increasing taxes levied on cigarettes.

See Our Complete Analysis For Philip Morris International

Have more questions on Philip Morris? See the links below:

• Why Is Korea Easier To Conquer For iQOS Than Europe?
• iQOS- A Product Of Innovation Or Necessity For Philip Morris?

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